2025: Top Three Picks
Keep on compounding!
As announced last week, here are my top picks for 2025. First, however, I will say a few words about my investing style. Secondly, I will explain my approach to sector selection. Finally, I will get on with it, presenting my picks.
Investment style
My investment approach balances cautiousness with long-term commitment. I start by dipping my toe into promising companies, acquiring small positions to test my thesis without overcommitting. If the company demonstrates strong compounding potential, I add to my stake. If not, I cut my losses and move on. Once a position grows to about 5% of my portfolio, I step back and allow it to flourish without interference, trusting in the power of great businesses to drive long-term growth.
This method allows me to capitalize on opportunities while minimizing risk, creating a portfolio that thrives on the strength of its constituents. In essence, I’m a patient investor who believes that the best strategy is to leave exceptional companies alone, so they can do what they do best: grow.
Sector selection
Pharmacology and technology companies are prime hunting grounds due to their secular growth potential. In these sectors, I focus on finding names with solid compounding characteristics. While I don’t believe other sectors necessarily offer inherently poor investments, I normally find that pharmacology and technology typically provide a more favorable environment for discovering companies that align with my investment criteria.
Top picks
Uber Technologies Group (UBER)
Why change a winning formula? UBER has all the characteristics I want to see in a compounder. Two years ago I initiated a position below $30, last year I added to the position below $60, and last week I added to it again below $70. Where will it be next year?- Higher I imagine, but how much higher? - I have my eyes set on $100.
Temporarily, UBER is stuck in a rut, where every positive news on full self-driving is interpreted as bad news for UBER and good news for Tesla. Investors will ultimately recognize that the advent of robotaxis will have a beneficial impact on Uber. This realization will catalyze a significant shift, allowing Uber to break free from its constraints.
So, why should you follow me into UBER today? - Two years ago, I was practically alone with my sky-high fair value. Today, it’s not only me who thinks UBER is undervalued, 32 Wall Street analysts agree.
Besides this, UBER continues to grow its user base at a fairly nice clip, and next year, the company will reduce the share count, indirectly giving back cash to its shareholders.
What more can I say? -Take advantage of the undervaluation, and get on board this magnificent compounder.
Amgen (AMGN)
I will not discuss the consequences of the American presidential election in full here. Luckily, we have already been through Trump 1.0, and nothing indicates that Trump 2.0 will be all that different. We learned from Trump 1.0 that occasionally his actions cause short-term chaos. As investors, we can take advantage of this volatility.
Trump’s nomination of Robert F. Kennedy Jr. (RFK) as Secretary of Health wasn’t good news for pharma stocks. Investors are right to be wary of RFK, simultaneously, we should be careful not to overreact. Health care is a complex area. Federal approval of new medicines is based on science, trial results, and established procedures. Hence, doctors prescribe drugs they think are the best for their patients regardless of what anyone in Washington seems to believe. RFK could, however, try to change insurance policies, to discourage treatments he doesn’t like. If RFK tries to go down this route, he will soon encounter serious opposition. Remember that the pharma business is represented by one of the strongest lobby groups in Washington. Congress will, therefore, in all likelihood, stop potential crazy initiatives coming from the Trump administration. Consequently, I see the recent downturn in the pharma sector as a huge buying opportunity. It wouldn’t surprise me if the pharma lobby “convinces” members of Congress to stop the nomination.
Many pharmaceutical stocks are experiencing significant declines due to RFK. My decision to invest in Amgen (AMGN) at this point is driven by the company’s undervaluation and the potential value of its pipeline, particularly the experimental obesity drug, MariTide. If MariTide proves successful, I value AMGN somewhere between $350 and $400 per share. Conversely, if the drug fails to meet expectations, I put the valuation in the range of $300 to $350 per share.
SoundHound AI (SOUN)
In the end, let’s have some fun. SOUN specializes in advanced voice artificial intelligence and speech recognition technology, enabling machines to understand and respond to human speech.
SOUN's Deep Meaning Understanding technology allows for a more intuitive interaction between users and voice assistants by processing complex queries and understanding user intent in real time. Picture this: in restaurants SOUN’s technology can process spoken requests from customers without assistance from waiters. Every order goes directly to the chef.
SOUN’s technology has numerous use cases. Today it is used mainly in customer service and the automotive and hospitality industry, providing tailored voice solutions that enhance user experiences and drive engagement. The company has already gotten many important customers, such as Toast, Stellantis, and Qualcomm.
SOUN has established significant partnerships with Nvidia and Oracle to enhance its technology and expand its market presence. Prospective investors should realize that SOUN can be classified as speculative growth. Volatility can be steep in the name. My advice is, therefore, to take a small position, and then, augment it, if the company keeps on compounding.
PS! This is a hot stock. I am already up over 15%, and I bought it on Thursday, two days ago.
Disclaimer: Important Information for Retail Investors
The information in this blog is for educational purposes only, not financial advice. Investing in stocks carries risks; past performance doesn't guarantee future results. Conduct thorough research and seek advice from financial professionals before investing.
The author is a retail investor, not a licensed advisor. Content accuracy isn't guaranteed due to changing market conditions. All investments have risks, including the potential loss of principal. Assess risk tolerance and goals before investing; diversification is key to managing risk.
The author may have positions in the mentioned stocks, which can change without notice. Readers should do their due diligence and consult professionals before acting on blog information.
Verify information from credible sources; understand prospectuses and financial statements before investing. Be aware of your financial situation and consult professionals for aligned investment choices.
Readers are responsible for their investment decisions; the author is not liable for any outcomes. Investing in individual stocks carries risks; caution, research, and professional guidance are advised for informed decisions.